Who offers what with Guaranteed Stops?

To guarantee or not to guarantee, that is the question.

I’ve had an on-off relationship with guaranteed stop orders: paying the price (one way or another) as a novice trader for the supposed “safety” that they offer, then realising that good diversification and prudent position sizing may be a better defence against price gaps, and finally re-adopting guaranteed stop orders in some situations as perfectly valid protection against big risks.

Like them or not, a growing number of the spread betting companies are offering optional guaranteed stops, but not on exactly the same basis. In this article I look at how guaranteed stop orders may differ between providers, and I conclude with my determination of the current best provider of guaranteed stops.

A Guaranteed Stop Order Defined

To ensure that we’re all on the same page, I’ll define a guaranteed stop order as an order to close your position at a guaranteed price when the market price hits or passes through that price. Guaranteed stop orders provide protection against price gaps and price slippage, and they limit your risk absolutely at a specific level. But they come at a price…

Charging for Guaranteed Stops

Spread betting companies typically charge for guaranteed stop orders in one of two ways:

Charging a fee for the guarantee, for example (from City Index): 0.4% of the consideration for a stock like Barclays Plc, or 3x the quantity for the UK 100 index.

Arguably, the wider minimum stop distance (discussed in the next section) and the consequent higher — but absolutely fixed — risk constitutes an additional cost.

Some spread betting companies actually boast “free” guaranteed stops, but only on highly liquid markets that in any case would be unlikely to gap-through your regular stops. Free does not always mean free, as I discovered when the now-defunct “Shorts & Longs” spread betting provider levied unusually high overnight financing charges in exchange for their supposedly “free” guaranteed stops on all trades. Having said that I do like Ayondo’s policy of free guaranteed stops on most products except equities – in fact I’ve noted that Ayondo have all-round very fair company policies.

Limitations on Guaranteed Stops

Besides charging you one way or another for the privilege, in exchange for taking the risk on guaranteed stops the spread betting companies impose certain restrictions including:

A limited range of markets on to which guaranteed stop orders may be applied; often limited to highly liquid markets like indices, commodities, currencies and blue chip companies.

A minimum stop distance that is typically much wider than the minimum stop distance mandated for a non-guaranteed stop order, thereby arguably increasing your risk.

A time restriction which prevents you from moving or trailing your guaranteed stop order when the market is closed.

A Guaranteed Stop Orders League Table

In the table that follows, I have listed a selection of spread betting companies (best first) in terms of their support for guaranteed stop orders. My rankings and the associated notes are based on my own attempts to place guaranteed stop orders rather than being based solely on the limited information provided by the spread betting companies themselves. While some of the details may not be exactly right — for example, Capital Spreads might not allow guaranteed stop orders on absolutely all equities — I regard my conclusions as being “right enough” to decide on the rankings. Most if not all of the spread betting companies that offer guaranteed stops allow them on indices, commodities and FX markets; but as a position trader my own specific interest is in the support for guaranteed stops on individual equity positions.

Capital Spreads

Allows guaranteed stops on all equities (at a cost) as far as I can tell, and allows you to apply guaranteed stops to existing positions — subject to the minimum stop distance.

IG Index

Allows guaranteed stops on all equities (with additional spread) as far as I can tell, but only when opening a new position and subject to a minimum stop distance.

SpreadEx

Allows guaranteed stops on most if not all equities (with additional spread), but only when opening a new position and subject to a minimum stop distance.

City Index

Allows guaranteed stops on some markets (at a cost), e.g. major indices and blue chip stocks, but not on all individual equities.

Ayondo

Free guaranteed stops limited to indices, commodities and foreign exchange markets. (as long as the minimum stop distance is upheld and its below a certain size.

ETX Capital

No support for guaranteed stops.

Where two or more spread betting companies provide apparently the same guaranteed stop order functionality, they are ranked in the table above according to my overall goodwill towards the trading platform based on other criteria.

And the winner is…

According to my table of rankings, the current winner in terms of support for guaranteed stop orders is Ayondo. The main reason for this is of course that Ayondo offers free guaranteed stops for all its markets except individual shares (subject to a minimum stop distance and if the stakes are below a certain size). So for example if you were to open a spread bet on the German Dax for £20 per point (it has to be lower than £25) and the stop loss is at least 34 points away then the stop will be guaranteed free of charge and automatically by Ayondo. The stop will either have a letter N for non-guaranteed or a letter G for Guaranteed. It is interesting to note that Ayondo also offer a zero debit balance protection meaning it will waive the negative account obligation and clients can never risk more than the amount they have in their accounts.